Poverty Traps With Local Allocation Tax Grants In Japan

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Abstract

This essay investigates poverty traps related to Local Allocation Tax (LAT) grants in Japan. LAT grants, which are transfers of funds from the central government to local governments, make efforts for enhancing regional economic growth, due to the calculation of the LAT grants. Using a simple dynamic model, we show that LAT grants lower regional income and are a disincentive to localities to increase their estimated tax revenue. Using panel Granger (non-)causality tests, we find empirical support for asserting that there are poverty traps due to the LAT grants in Japan.

Original languageEnglish
Pages (from-to)466-487
Number of pages22
JournalJapanese Economic Review
Volume61
Issue number4
DOIs
Publication statusPublished - 2010 Dec 1

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ASJC Scopus subject areas

  • Economics and Econometrics

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